Financial Planning for December 2006

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ĎTis the Season to Give
(And Also to Steal)
Happy holidays, everyone. The next month is perhaps the most exciting time of the year. With the office parties, open houses, holiday shopping and, of course, the wistful look on kidsí (ages 1 to 100+) faces as they dream of gifts, itís a time of joy, good cheer and chaotic rushes to the mall; a time when everyone has an opportunity to forget his or her troubles and celebrate.

Unfortunately, the good cheer and friendliness that the holiday season inspires also makes many of us easier targets for scams. When weíre out buying presents for the family, itís hard to resist appeals to help a child in poverty or a homeless family. Amongst the plenty that most of us have, itís difficult to deny someone in need a meal or warm clothing - and thieves know this.

So, how do you protect yourself from unscrupulous predators? Can you protect yourself from people who prey on the goodwill of others? This article is intended to give you tools to avoid being fleeced by charitable fraud this holiday season.

First Line of Defense

Your best bet to avoid being a victim of fraud is to give only to recognized charities. Thatís a simple thing when you donate only to organizations like The Salvation Army, Red Cross and similar national organizations, but what if you see an appeal from what looks like a legitimate charity? How do you know it isnít a scam? The simplest answer is that you must either investigate the potential beneficiary or decline to make a donation.

Thanks to the internet, investigating a not-for-profit association is not too difficult. There are a number of services that provide what appears to be solid research on many charitable organizations. Among them are:Give.org is a site sponsored by the BBB Wise Giving Alliance (Alliance). At this site, you may be able to get an in-depth report on the charity in which you are interested. The Alliance grades an organization by using numerous factors that collectively make up its Standards for Charity Accountability. These standards are a list of twenty guidelines that include principles related to organizational governance, measuring program effectiveness, financial accountability and fundraising efforts.

In addition to providing detailed data on charitable organizations, the Alliance began offering a National Charity Seal Program in 2003. To be eligible to participate in the program, a charity must be national in scope and meet the Standards for Charity Accountability. If eligibility requirements are met, a charity receives the right to display the Allianceís seal on its promotional material for a license fee of anywhere from $1,000 to $15,000, depending on donation revenue.

Charitynavigator.org, like Give.org, provides detailed information on the charities it rates. Charity Navigator rates organizations based on what it calls organizational capacity and organizational efficiency. Organizational capacity looks at how well a charity has been able to maintain its program services throughout its life, including evaluating revenue growth and funds available to carry out its mission. Organizational efficiency examines how a charity uses its revenue in the furtherance of its mission.

Ministrywatch.org is a site designed to help potential donors evaluate Christian religious organizations. Since this is a time of year when many large ministries seek to collect funds, this site can be particularly useful in helping you avoid being defrauded by "ministries" with less than pure motives. In addition to the research MinistryWatch offers, it provides a page with references to other charitable organization watchdogs.

Second Line of Defense

Industry watchdogs like those we have been discussing rely on voluntary participation by charitable organizations. Without voluntary participation, it is simply not feasible for these services to keep track of all of the charitable organizations in the United States.

If you strike out at one of the sites discussed in the preceding section, you may gain some comfort from the IRS itself. The Internal Revenue Service maintains a list of qualified charitable organizations on its website. While inclusion on the IRS list is not a guarantee of organizational integrity or effectiveness, it does let you know that the charity is a recognized tax-exempt entity and that donations thereto are deductible.

In connection with a search of the IRS website, or in lieu of such a search, you can always request a copy of a charityís Federal Form 990. By law, any request made of a tax-exempt entity for a copy of its 990 must be honored. If a charity refuses to allow public inspection of its Form 990, it can face severe penalties. Should your request to see the form be denied, this is a sure sign that you do not want to make a donation to that charity.

A Final Word of Caution

The Internet and e-mail are becoming such a way of life for most of us that itís sometimes hard to remember: one of its greatest strengths and weaknesses is its anonymity. That anonymity can work well in perpetrating fraud against good-hearted people. If you receive a donation request from an entity with which you have never done business, delete the request. If the e-mail purports to be from a real charitable organization (Red Cross, United Way, Salvation Army, etc.), find that organizationís website and ask if the request is legitimate. Whatever you do, donít respond to any request for money by providing the sender any information that could help them steal from you. Because it is so easy to make an e-mail link seem genuine, never click on the link to make a donation.


Conclusion

Itís a sad fact of life that there are those who prey on good-natured people in order to take their money. No mark is easier than someone who is predisposed to helping those in need. The desire to give is always good, but be careful to temper that desire with wisdom and investigate any request for donations from a charity unknown to you. Those you wish to help will still be helped and you will protect yourself from thieves bent on stealing your money.

Happy Holidays to all!

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